While the meltdown of the housing market originally benefited the multifamily sector — as more homeowners transitioned to renters — the current recession and its rising unemployment has started to affect activity.
“Right now, it is all about the economy,” says Kevin Wolfgang, president of New Castle-based Evergreen Realty and recently elected president of the Delaware Apartment Association. “Our industry is directly affected by the job market, so the increased amount of unemployment has created significant operation challenges.”
Multifamily owners in Delaware are weathering the storm by focusing on the operation of the properties — trying to find ways to make them as efficient as possible. This has slowed down sales considerably. Owners who are still receiving a steady cash flow are seeing no reason to sell for less money.
“Most investors are very cautious right now,” Wolfgang says. “No one is chasing deals, and there is nothing that I have seen as having a major impact on the market right now.”
Evergreen Realty’s main activity has been its purchase and upcoming redevelopment of Hampston Walk Apartments, a 370-unit community located in New Castle. The company purchased the blighted property in mid-2008 and is repositioning it with renovations to unit kitchens and bathrooms, common areas and hallways, as well as exterior improvements.
Most new development activity is focused on the northernmost county of New Castle, an area that is sometimes considered a far suburb of Philadelphia. The capital city of Wilmington has experienced an explosion of new housing growth in the past few years, which continues to today.
“There used to not be too many people who made their home in Wilmington, then The Buccini/Pollin Group came along and almost single-handedly created the professionally managed residential market in downtown Wilmington,” Wolfgang says.
Three of the developer’s most prominent Wilmington projects already completed include The Residences at Rodney Square, The Residences at Christina Landing and The Residences at Justison Landing. It is now working on Market Street – Cosby Hill, a 200-unit project on the 800 block of the historic Market Street neighborhood that will also feature street-level commercial space.
Also in Wilmington, the historically blighted Courtyard Apartments is expected to be gutted and redeveloped into high-end multifamily units. In Newark, locally based Capano Management Co. has started renting Phase I of The Reserve, a Class A community that includes amenities such as a clubhouse, a fitness center and a swimming pool. While New Castle County remains a development hot spot, the trend may not continue much into the future.
“The barriers to entry in New Castle County are high, and there is no land left to develop,” Wolfgang says. “We’ve seen a southern progression for development to continue. Middletown, Delaware, has exploded in the past 10 years, and I expect that once the country gets back on its feet, the development march south toward Dover will continue.”
In a way, it has already started. Middletown-based Lenape Builders has recently developed Middletown Village Apartments in Middletown and Sunnyside Village Apartments in neighboring Smyrna. New development past this will have to wait until the economy turns around the construction picks back up. While no one has a crystal ball, Wolfgang expects challenges for the Delaware market in the coming year.
“I expect 2009 to be a difficult year,” Wolfgang says. “Companies are really going to have to make operations a priority. I expect sales velocity to continue to be slow, with continued pressure on cap rates to rise. There will be almost no development that hasn’t already started.”
“However, companies that are strong operationally and have solid cash positions will likely begin to see real opportunities at the end of 2009 and into 2010.”
— Coleman Wood